Logistics market changes and opportunities post-COVID-19

Florian Stöbe, Head of Investment – Germany

Without question, it has been an interesting year to launch a logistics fund.

Despite the many challenges faced by companies and individuals as a result of the global pandemic, some elements of the real estate market have continued at pace, prompting reassessment from investors forced to re-examine risk profiles under these unexpected circumstances.

Appetite for logistics, alongside residential, continues to grow – especially in key subsectors that have seen increased demand during lockdown conditions across Europe.

E-commerce is the clear frontrunner. In Germany, online grocery shopping in particular has experienced a major boost since the spring. The German Association for E-Commerce and Online Trade (bevh), for example, now expects a 68.6% increase in online grocery sales for the fourth quarter this year, making it the fastest growing sector ahead of medicine (55.1%).

Pharmaceutical companies are clearly another area to watch, not only because of online sales growth and the surge in vaccine production, but new regulations mean that storage facility requirements need to be reassessed. Many older properties no longer conform, and businesses need modern premises quickly.

Manufacturers face different pressures but with many looking to take real estate off their balance sheets to concentrate on core business, increasing numbers of investment opportunities should come to market here as well.

We are seeing first-hand growing institutional investor demand for these specialist facilities, and the long leases and attractive income streams they can offer.

But when demand for logistics has already been strong for some time how can this latest surge be fulfilled?

We know that space for development is already scarce, especially at the edges of large towns and cities. While standard projects in traditional locations work well, do they still offer the returns that investors expect?

Our first fund – VELF 1, which closed earlier this year and now has €316m to invest – is focussed on a different approach. We believe that in this market, existing assets and brownfield sites are under-appreciated. With the right approach, they offer significant potential for both transformation and above-average returns.

Edge of centre and urban infill locations that help meet the e-commerce sector’s last-mile requirements are particularly attractive. Other, perhaps overlooked, strategic sites across Germany, Northern Europe and the Nordics with the right fundamentals are worth considering too.

Existing properties and single- or multi-let, logistics parks with long- or short-term leases in place could all offer potential for reconfiguration, modernisation and/or expansion.

In its simplest form, this could mean extending buildings to create additional space on the same footprint. Larger sites mean the chance to implement a new masterplan and either completely redevelop or offer new space for existing tenants before reconfiguring  the rest of the site or property to create more floorspace.

Despite everything that has happened this year, 2021 is set to be even more active with more investment activity capitalising on the opportunities that this changing market is generating.

We hope that there will be no looking back in our sector. The megatrends behind logistics sector growth – digitalisation and the rise of e-commerce – are set to continue long-term, hastening the decline of sectors and businesses that cannot keep up and accelerating those able to adapt and thrive in this evolving trading environment.

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